Pakistan: A surprising outperformer in the global economic crisis
The month of September started on a positive note for Pakistan’s economy as a New York-based research firm Marketcurrents Wealthnet reported Pakistan Stock Exchange as the best performing stock market in Asia and the fourth-best in the world. The PSX benchmark KSE 100-index provided the US Dollar-adjusted return of 38.5%, according to the research firm. The KSE 100-index jumped from the low of 27,200 on March 25 to a high of 42,100 on September 3, recording a gain of more than 50% from the low benchmark index registered due to the panic selling during the coronavirus crisis.
Pakistan’s response to the coronavirus pandemic has been effective, with the policy of smart lockdowns, partial opening of businesses, and introduction of Ehsaas emergency cash program to help poor people meet their daily needs, the country has emerged as a coronavirus winner. Pakistan only reported 498 COVID-19 cases in the last 24 hours with 7 deaths as compared to 83,000 new cases and more than 1,000 deaths reported by neighboring country India in the last 24 hours
The stock market isn’t the only positive indicator for the economy of Pakistan. A shrinking trade deficit is another important indicator. Pakistan’s trade deficit dropped from $31.8 billion in the fiscal year 2018–2019 to $23.18 billion in the fiscal year 2019–2020, registering a significant drop of 27% in the trade balance. For the fiscal year 2019–2020, imports dropped by more than $10 billion, mainly due to coronavirus pandemic, import tariffs, and falling oil prices. Pakistan recorded a trade surplus with Italy during the last fiscal year, marking another key development in the balance of trade.
Pakistan reported a $2.77 billion inflow of foreign remittances in July 2020, the highest monthly remittances recorded in Pakistan’s history. According to the data released by the State Bank of Pakistan, the number represents a 36.5% year-on-year growth as compared to July 2019. Saudi Arabia topped the list of largest contributors in foreign remittances as more than $820 million were received from the country followed by the UAE ($538 million) and the UK ($393 million). Foreign remittances account for more than 8% of Pakistan’s GDP, making it one of the most important indicators of GDP growth.
The world’s top 3 credit rating agencies, Moody’s, Standard & Poor’s, and Fitch termed Pakistan’s long-term economic outlook as stable. All these economic indicators are presenting a brighter picture for Pakistan (as of now at least), but people are asking the same question, is it sustainable? In my opinion, for that we need to wait and watch because, despite the reason that these indicators are positive, there are some serious economic issues with Pakistan, let’s talk about some of them
Barriers in Economic Growth
Pakistan’s GDP growth has been hit hard by some weak economic policies and political instability in recent years. GDP growth rate in 2018 was at 5.53% but dropped significantly to 1.91% in 2019 and now stands at around -0.38%. Export numbers are bad, despite the reason that the overall trade deficit decreased in recent months, export numbers are not increasing at all, Pakistan is only getting the benefits of a decrease in imports, and the import bill can shoot up in case of rising oil prices once we get over the coronavirus pandemic. Since the start of 2020, the Pakistani rupee depreciated around 8% against the US Dollar, making it one of the worst-performing currencies against the US Dollar despite the reason that the dollar itself is trading near the lows of May 2018. High inflation numbers are dangerous for economic growth, and Pakistan is currently suffering from a seriously high inflation rate, although the inflation rate dropped in recent months but continuously rising prices of essential food items making it difficult for common people to survive. According to the Pakistan Bureau of Statistics, the national average price of Sugar and Wheat Flour has increased by 23.5% and 18.6% respectively on a year-on-year basis.
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